Profitability of US Small Banks pre-during-post 2008 Global Financial Crisis: Evidence from Ratio Analysis
DOI:
https://doi.org/10.47743/saeb-2026-0032Keywords:
Bank profitability, Ratio Analysis, 2008 Global Financial Crisis.Abstract
This study contributes to the banking literature by examining the impact of the 2008 Global Financial Crisis (2008 GFC) on the profitability of U.S. small banks. Using U.S. small banks’ financial data from 2001 to 2025, we partition data into three distinct periods: pre-(2001-2006), during- (2007-2011), and post-(2011-2025) 2008 GFC, and utilize several commonly used profitability ratios. The results indicate that the 2008 GFC had a significant negative impact on the profitability of U.S. small banks: The small U.S. banks had high profitability scores pre-2008 GFC, a declining trend that started three years before the 2008 GFC, a sharp decline during the 2008 GFC, and a profitability recovery that started in 2010 and continued until 2025. Two conclusions can be drawn from the results. First, small banks used the low-interest-rate environment during and after the 2008 GFC to sharply reduce their interest expense and remain profitable. This indicates that the Fed’s expansionary monetary policy to counter the 2008 GFC, by reducing market interest rates, benefited small banks. Next, the decline in profitability of small banks began three years before the 2008 GFC, and the increase in profitability occurred before the 2008 GFC ended. This suggests that changes in the profitability of U.S. small banks may have predictive value for the start and end of major financial crises.
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